Faced with an economy nearing recession and inflation at the highest in almost six years, Nigerian President Muhammadu Buhari has backed down on his refusal to allow the naira to weaken.
Buhari has given the central bank the go-ahead to introduce a more flexible exchange-rate system even as he remains against a devaluation of the naira, said Garba Shehu, his spokesman.
“The president is opposed to devaluing the naira, he has said so repeatedly,” Shehu said in an interview on state-controlled NTA Television on Monday. “He has given them leeway to introduce what he has called ‘flexibility in managing’” the currency’s value, he said, referring to the central bank.
Buhari said at the weekend he supported a stable currency, though he would keep “a close look at how recent measures affect the naira and the economy.” The comments, made days after the Central Bank of Nigeria said it planned to introduce a more flexible exchange-rate regime, left traders guessing whether he supported those measures.
“The authorities are acknowledging they need to do something,” Kevin Daly, a money manager at Aberdeen Asset Management Plc, which sold all its Nigerian government debt in response to currency controls, said by phone from London. “They realize this policy is doomed. The question now is how you implement it and how you save face.”
Nigeria has held the naira at 197-199 per dollar since March 2015, even as other oil exporters from Russia to Colombia and Malaysia let their currencies drop amid the slump in crude prices since mid-2014. Foreign reserves dwindled as the central bank of Africa’s largest oil producer defended the peg, while foreign investors, fearing a devaluation, sold Nigerian stocks and bonds.
Three-month non-deliverable naira forwards have weakened about 35 naira to 283 per dollar since the central bank announced its change of direction, suggesting traders anticipate the currency may trade near that level in the event of a devaluation.
Central bank Governor Godwin Emefiele said on May 24 policy makers were considering a two-tier currency system, with the naira trading nearer a market-related level in the interbank market while the central bank would continue to allocate dollars to strategic industries at a fixed rate. He said the new system would be implemented “in the coming days.”
Buhari’s comments are contradictory, according to Sewa Wusu, head of research at Sterling Capital Markets Ltd.
“How do you say you don’t believe in devaluation if that is what will create a fair price or bring about a market-determined rate?” Wusu said by phone from Lagos, Nigeria’s commercial capital. “The government should come out clearly and say what it wants.”